The much despised stamp duty charges are about to make things worse for ‘foreign’ buyers and owners of UK property, writes Stuart Smyth
If a poll was ever taken to establish the country’s least favourite tax (an exercise tax lawyers are inclined to undertake on a Friday evening over their favourite tipple), it would be unsurprising if Stamp Duty Land Tax (SDLT) came somewhere near or right at the top. While there may be few supporters of the tax outside Whitehall, one could be forgiven for feeling a little sorry for SDLT given the way it has been used recently for political point scoring.
Broadly, SDLT is a tax on the purchase of UK real estate. Chargeable on the total value of consideration, it is payable by the purchaser shortly after completion. Where the purchaser is an individual, the current SDLT regime uses a ‘banding’ approach so that SDLT is only payable on the portion of the property value which falls within each band (rather than tax being due at one rate on the entire property value). It is a tax seen by first time buyers as a barrier to stepping on to the first rung of the property ladder as well as by those already on the ladder as a restriction to moving up or down.
From 1st April 2016, a 3 per cent surcharge was introduced on each band for purchases of residential property where an individual purchaser already owns an interest in another residential property and is not replacing their main home. Sounds simple but anyone who has had the pleasure of dis-entangling themselves from the web of the ‘surcharge’ rules will know otherwise. Their reach is extensive. For example, the 3 per cent surcharge can apply where you have never bought a property before but you have inherited one or have an interest in a trust which owns a property. The surcharge rules also apply even if you do not own a property in the UK but do own one in another country.
Further tinkering took place in November 2017, when the Chancellor of the Exchequer took everyone by surprise by announcing in his budget speech that first time buyers would be relieved from paying SDLT on residential property up to the value of £500,000. Buyers who qualify for the relief do not pay SDLT on the first £300,000. But not if the first time buyer has previously owned any interest in a property (ie inherited, in trust and whether or not it has since been sold).
And once again, it looks as though SDLT may be in line for another tweak. Ahead of the 2018 Conservative party conference, Theresa May announced that SDLT may be increased for ‘foreign buyers’ of UK properties. The increase takes the form of another surcharge of 1 per cent or 3 per cent which would be slapped on top of the existing surcharge, if applicable. A move of which even ‘a location-based app that makes hiring an on-demand private driver easy’ (mentioning no names of course) would be proud . This could mean a ‘foreign buyer’ who already owns a property in their home country could be facing SDLT at a rate of 18 per cent on the top band.
For the purposes of the announcement, ‘foreign buyers’ were described as purchasers who ‘do not live in the UK and do not pay tax in the UK as well as foreign based companies’. It will be interesting to see how the draftsman interprets this concept in legislation. If previous changes are anything to go by, a wide, catch-all approach can be expected. It will also be interesting to see whether the foreign purchaser surcharge stands up to the scrutiny of EU legislation and the requirement not to discriminate between EU persons.
No timeline was given as to when the foreign buyer surcharge may be introduced. If the proposal is a serious one, further detail could be expected in the budget at the end of October.
Photo credit: Chatham House @ Flickr
Stuart Smyth is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP